Australia has the wealth to ensure a sustainable future, but too many people are being left behind



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Many Australians are feeling less secure about the future, despite rising income levels since 2000.
Dan Peled/AAP

Sue Richardson, University of Adelaide

The purpose of our social, economic and political systems is to enable all Australians to lead good lives. Australia is doing well on some fronts. It ranks third out of 188 countries on the UN Human Development Index, which takes into account life expectancy, education and national income per capita. We also rank 19th on national income per capita.

This suggests Australia is rather good at converting national income into social well-being. But a key question is whether we are using our income in a way that will continue to enable all Australians to lead materially, socially and environmentally enriching lives. That is, are we acting in a way that is both fair and sustainable?

A report released by the National Sustainable Development Council, in collaboration with the Monash Sustainable Development Institute, provides robust data on many of the specific indicators related to environmental, social and economic well-being. These indicators give us a clear idea how well we are doing in the important goal of “leaving no one behind” and providing the same opportunities for future generations.

Inequality remains high despite economic growth

A remarkable feature of Australia’s economy is that, with some fluctuations, real income per capita rose by over 40% from 2000 to 2012, but has not increased at all since. This has left many people feeling stressed and disgruntled about living costs.

There is a sense that a high income is not enough to lead a good life – a continuously rising income is needed. Coupled with the high inequality in society and a worsening environmental footprint, it all points to threats to the sustainability of our current standard of living.




Read more:
Growth without direction: How Australia measures up against UN targets


The large rise in income in recent years was accompanied by a decrease in the rates of poverty and material disadvantage, especially before 2013. The increase in the value of the age pension made a material contribution to this. In contrast, the falling relative value of Newstart has had the opposite effect.

Overall, inequality remains high by Australian and international standards. The government continues to play a very important role in offsetting at least some of this inequality. However, this is sustainable only if people remain willing to pay the necessary taxes and support transfer payments to help those with lower incomes.

Australia is also doing well in the health of the population. Life expectancy is among the highest in the world, reflecting comparatively low rates of illness and injury. Good health is supported by a well-resourced, universal healthcare system, substantial gains in reducing deaths from road accidents, and world-leading tobacco control policies.




Read more:
Australia’s UN report card: making progress, could do better on inequality and climate


However, our good health and well-being is challenged by high rates of obesity and alcohol consumption. Further, the proportion of the population experiencing high to very high levels of psychological distress has not fallen. Between 15% and 20% of young and middle-aged women now report having high to very high levels of distress.

And we do leave people behind. Indigenous people have much poorer health and lower life expectancy than the general population – a stain on our society.

Early childhood education is lagging behind, too

Australia is performing well in some areas of education: we have high rates of post-secondary school education, our students consistently perform well in collaborative problem solving, and Australian adults rate well above the OECD average in technological problem solving.

But, again, we’re performing poorly on sustainability. Student performance in literacy, maths and science on the international PISA tests has fallen and the percentage of children aged five who are developing normally in overall learning, health and psycho-social well-being has remained stagnant.

Australia is also a laggard among OECD countries in its public support of early childhood learning and development. The only improvement has been in language skills for children aged five.




Read more:
Australia falls further in rankings on progress towards UN Sustainable Development Goals


In other societal issues, the Monash report showed that Australians are increasingly fearful of violent crime, despite low crime rates. Tougher laws have been introduced in response to this fear of crime, and imprisonment rates have risen significantly in recent years. This fear undermines social trust, which is very hard to recover and is a threat to the sustainability of our social cohesion.

Australia is also lagging on gender equality. Women continue to face far greater economic insecurity than men. This is particularly evident at retirement, when women’s superannuation balances are 42% below that of men’s, reflecting their substantially lower lifetime earnings.

Most disturbingly, the proportion of women and girls subjected to physical, sexual and psychological violence remains unacceptably high. Domestic and family violence remains the leading preventable contributor to death and illness for women aged 18–44.

Australia has done remarkably well on some of its UN Sustainability Development Goals. But there is definitely room for improvement, particularly in the way we are degrading our natural world and key areas of health, education and social inequality. We need to address these threats to sustainability if we’re going to ensure our people enjoy good lives now – and in the future.


This article is part of a series looking at Australia’s progress toward meeting the UN Sustainable Development Goals, based on a report published by the Monash University Sustainable Development Institute.The Conversation

Sue Richardson, Adjunct professor, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Vital Signs: the GFC and me. Ten years on, what have we learned?



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Wayne Swan and Kevin Rudd spent big and spent bold, and it almost certainly kept us out of recession.

Richard Holden, UNSW

A little more than a decade on from the the collapse of Lehman Brothers, the largest bankruptcy in history, many of the world’s advanced economies are only now beginning to recover fully.

I was on the faculty at the University of Chicago at the time and, like many, followed the events of the 2008 US summer with a combination of interest and outright fear.

It is hard to describe how scary the two months around the Lehman bankruptcy were. Two anecdotes convey some of that fear, however.

The first was when I spoke to an economics official in the Obama administration who said: “Go get cash and bottled water. Automatic teller machines might not be working two days from now.”




Read more:
Anniversary of Lehman’s collapse reminds us – booms are often followed by busts


The second reflects just how severely money markets froze up. Goldman Sachs – Wall Street’s most venerable firm – was largely on the good side of trades on credit default swaps, the instruments behind much of the crisis. Yet its stock price was utterly hammered. It wasn’t until legendary investor Warren Buffett sank US$5 billion into Goldman that confidence was restored.

On one day Goldman stock was down by a staggering nearly 50% in intra-day trading. It very nearly went the way of Lehman – all because of what amounted to a modern-day bank run.


Golden Sachs stock price: YahooFinanceChart.


The Obama administration responded with spending (including on tax rebates for households and firms), big interest rate cuts and measures to ensure banks had access to funds. Combined, these helped avoid a repeat of the Great Depression.

When Australia splashed cash

Australia, too, spent big: A$10 billion in October 2008 and a further A$42 billion in February 2009. More than half of the second sum, $A26 billion, went on infrastructure. Another $12.7 billion was spent on cash bonuses, including $900 for every Australian on less than $80,000.

And we cut interest rates, massively, and guaranteed bank deposits.

The International Monetary Fund, the Organisation for Economic Cooperation and Development, and most good economists think what we did was essential to ensure Australia avoided a severe downturn.

Prime Minister Kevin Rudd and his treasurer, Wayne Swan, deserve a lot of credit.

Yet there are those on the conservative side of politics who claim the stimulus spending was wasteful, not that helpful, and locked in an era of higher government spending.

Wasteful? Not really

As prime minister in 2016, Malcolm Turnbull encapsulated the view that the spending was a waste when he told the ABC’s Leigh Sales: “I think what shepherded Australia through the GFC successfully was the Chinese stimulus and the large amount of cash that John Howard left in the bank.”

Here’s what I think.

The Chinese stimulus helped, but China didn’t do it to help Australia. It did it to help itself, with a happy byproduct being continued demand for Australian resources.

Does Mr Turnbull really think the Chinese government was either mistaken (because stimulus spending doesn’t help) or benevolent (because it wanted to help Australia)? These are not terms normally associated with Beijing.

The “large amount of cash” left by the Howard government was indeed very important. It allowed the Rudd government to spend big without running up huge government debt. As the noted UC Berkeley economists Christina and David Romer have pointed out, using evidence from 24 advanced economies, fiscal and monetary policy “space” is important in ensuring the stimulus programs work.




Read more:
Government spending explained in 10 charts; from Howard to Turnbull


So, yes, Howard’s debt-free budget was important, but only because it gave the government room to spend.

There is an important point here. Namely, that prudent fiscal management through ordinary times is essential in order to build up the firepower to respond in extraordinary times.

Australia still enjoys government debt to GDP that is low by OECD standards, but its growth has been very rapid even in post-crisis years because of the structural gap between government revenues and expenditures. Both sides of politics say they are committed to narrowing it. We shall see.

Space matters

“Space” to act with monetary policy (official interest rates) is also important.

It’s the basis for much of the talk about a “new monetary policy framework” that would lift interest rates from their present lows in Australia and overseas to around 5%. It’s a goal articulately and forcefully argued for by former US Treasury Secretary Larry Summers. Getting there would give central banks the firepower they might need.

These lessons have been learned to varying degrees, but are now thankfully at least part of the mainstream debate.

And regulation

One thing that everyone should have learned from the financial crisis in general, and Lehman in particular, is the need for effective regulation of financial institutions.

The combination of massive leverage, opaque financial instruments and radical interconnectedness of financial firms in the US was a disaster waiting to happen.

In many ways it still could be.

Republicans in the US want to dramatically roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act introduced by President Obama in response to the financial crisis.

Although far from perfect, it helped de-risk the US financial system.

In Australia the failings of financial regulators play out every day at the Hayne Royal Commission, in excruciating detail.




Read more:
Royal commission scandals are the result of poor financial regulation, not literacy


It entitles us to ask if Australian regulators can’t prevent outright theft by financial institutions, how equipped are they to prevent more complicated transactions that might put the financial system at risk?

The answer is: not very.

We’ve learned some things

A decade after Lehman it’s fair to say we have learned lessons.

We know how to use big and bold fiscal (spending) policy and monetary (interest rate) policy to create a virtuous circle of beliefs that can pull us out of a downturn.

And we know that we need to reload both fiscal and monetary policy in the good times so we are ready for the bad times.

But on financial regulation the US might be about to go backwards, and we never really went forwards.The Conversation

Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Trump versus China means picking sides



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If the trade war with China escalates, siding with the US is going to cost, but Australia’s long-term national interests still lie with it.
Shutterstock

Giovanni Di Lieto, Monash University

As Donald Trump escalates his trade war with China, slapping a 10% tariff on roughly $US200 billion of imports that will climb to 25% if China retaliates, he appears to found something of a soul mate in Scott Morrison.

“We both get it,” Australia’s new prime minister said this week. What they get, he told the New York Times’ Maureen Dowd, is that some people feel left off the globalism gravy train: “The president gets that. I get it.”

His words signal a profound change of tack in Australian economic diplomacy as the new US approach threatens to break down the World Trade Organisation and universal trade agreements in general.

Under Trump, trade will depend on stronger bilateral (one on one) agreements that support US geopolitics.

It’ll mean Australia picking sides.

Double dangers in middle of the road

The status quo of relying on China for trade surpluses and on the US for security patronage might not be sustainable in the long run.

Siding with neither China or the US, attempting a “third way” of non-alignment, runs the risks losing out on both trade and security.

Broadly speaking, we can summarise the trade war between the US and China as a contest between sea and land.

The US aims to secure trade routes through the Indian and Pacific oceans. China wants to shift the bedrock of international trade to Central Asia.

Its Belt and Road Initiative is a grand strategic plan to join Eurasian economies from Lisbon to Vladivostok. The plan would end the historic era of Anglo-American hegemony founded on controlling trade routes across the Atlantic, Indian and Pacific oceans.




Read more:
Is the Trump administration getting East Asia right, or just confusing it?


Australia faces an existential strategic choice.

Leaving political ideologies aside, its economic prosperity depends on trade by sea. The return of Marco Polo’s world would eventually make Australia little more than a price-taking commodity supplier to trade and investment hubs from Beijing to Venice.

This means our national interests lie with the US defence of its seaborne trading routes.

Picking a side will be costly

In the short term, especially if the trade war escalates, siding with the US will be costly. We could lose a good deal of China-related export and business opportunities. Over the longer run we could offset the losses by diversifying to trade and invest in countries with shared strategic interests, such as Indonesia and India.

We would be well advised to reconsider the diplomatic benefit of RCEP, the China-led Regional Comprehensive Economic Partnership. This mega regional trade deal between the 10 members of the Association of Southeast Asian Nations and their bilateral trade partners has been dubbed the Chinese Trans Pacific Partnership. It can be seen as an extension of Xi Jinping’s major-power agenda.

After a promising start, RCEP negotiations now appear to be stuck. The main obstacle is India’s fear of worsening its already significant trade deficit with China.

Our interests lie with the US, and India

Another sticking point is that India, the Philippines and other potential members want countries like Australia, New Zealand and Japan to open up their markets for information technology and professional services.

In pure trade terms we would lose little if the RCEP did not proceed. We already have strong bilateral ties with all the negotiating countries apart from India, with whom we are presently negotiating a free trade agreement.

We would be well advised to use our limited diplomatic resources for that and supporting the US when it comes time to pick sides.The Conversation

Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Growth without direction: How Australia measures up against UN targets


Rod Glover, Monash University

Australia has enjoyed 27 years of continuous economic growth, arguably more than any other developed country. Almost alone among developed economies, we managed to avoid a recession during the global financial crisis. Employment is at an all-time high, due mainly to a surge in the labour force participation of women, from 40% to 56% of all women over the past three decades.

This success was built on a contract – partly explicit, but mostly implicit – in which the bulk of the population agreed to support contentious reforms in exchange for a guarantee that they wouldn’t be left behind.

The Transforming Australia: SDG Progress Report published this week by the National Sustainable Development Council in partnership with the Monash Sustainable Development Institute finds that contract has become fragile. Although the economy is much larger than it was, since 2012 disposable income per capita has barely grown at all.

Our AAA credit rating is at risk from our reliance on foreign capital for investment (mostly borrowed), our high household debt and our narrow industry base.




Read more:
Australia’s UN report card: making progress, could do better on inequality and climate


High employment masks high inequality and entrenched disadvantage. Although the unemployment rate has fallen from 6.5% to 5.5% since the turn of the century, underemployment (where people work fewer hours than they want to) has climbed from 6.5% to 8.5%. Since the crisis the proportion of the unemployed who have been out of work more than a year has climbed from 14% to 24%. Low-skilled men, younger Australians, women with children, and Indigenous Australians find working more challenging than the headline figure suggests.

Wages growth fell to an all time low after the economic crisis and has yet to recover.

Well-connected cities and regions

As a vast country, connectivity is critical to our prosperity. By and large, we meet the need well through investment in physical infrastructure. But rapid population growth in our big cities and political considerations have made it more difficult.

Our cities and regions offer a very high quality of life, but are evolving by default rather than design. Planning isn’t guided by a consensus about the desired pattern of economic and population growth. The result is low-density cities (far lower than comparable overseas cities) meaning long commutes and social isolation for many.




Read more:
Our urban environment doesn’t only reflect poverty, it amplifies it


As house prices have surged, our household debt has climbed from 70% of GDP in 2000 to 120% of GDP today. Home ownership has become more difficult, with many only able to afford options that come with poor access to services and jobs. We are now vulnerable to falling house prices, rising interest rates and global uncertainty.

Dynamic but not diversified

Our open and flexible economy has benefited from dynamism offered by new people, new ideas and new investment. Strength in industries such as international education delivers not only a sizeable brain gain, but also new and important relationships, particularly in our rapidly growing region.

But these successes disguise our wider failure to diversify our economic base. Economic complexity (EC) measures the depth (sophistication) and breadth (diversity) of what a nation sells to the world. It is a strong predictor of economic prospects.

While the EC measure has limitations for a heavily resource-intensive and service-based economy, Australia’s low and deteriorating ranking, 86th in the world, is consistent with other indicators.




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No clear target in Australia’s 2030 national innovation report


Our high investment in physical capital contrasts sharply with our comparatively low investment in knowledge-based capital. Knowledge-based capital encompasses not only research and development, but also software and data, design, marketing and organisational capabilities.

Australia’s business investment in R&D has fallen consistently since the crisis. We rely far more heavily than other nations on indirect R&D tax incentives, leaving less room for more direct approaches.

Innovative nations stimulate both public and private sector innovation through mission-driven approaches. With a few exceptions, Australia does not. We do not attempt to leverage our strengths in fields such as health, education and water, or to meet societal needs, such as those for reduced emissions, sustainable food, better population health or less inequality.

There’s an alternative

A more robust and resilient Australia would be built on a broader base of industries and capabilities. It would address goals that were more than merely economic and adopt as a goal a smaller environmental footprint.

Getting there would require us to develop a shared vision of what we want. We are doing well overall, and badly in places, without quite knowing what we are trying to achieve.

Transforming Australia: SDG Progress Report is an initiative of the National Sustainable Development Council to assess Australia’s progress against the UN Sustainable Development Goals.The Conversation

Rod Glover, Professor of Practice, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Morrison’s return to surplus built on the back of higher tax – Parliamentary Budget Office


Saul Eslake, University of Tasmania

First, the good news. The Parliamentary Budget Office’s latest medium-term budget projections provide
independent reassurance that the government’s personal income tax cuts, announced in the May budget and passed through parliament in June, can be funded without pushing the budget back into deficit.

But they also sound warnings about the downside risks from weaker-than-assumed economic or wages growth, and from any relaxation of the spending restraint
that successive governments have maintained since 2012.

More income tax

The PBO projects the federal government’s “underlying” cash balance to improve from 0.8% of GDP in 2021-22, the last year of the latest budget’s forward estimates period, to 1.3% of GDP in 2028-29.




Read more:
Budget policy check: does Australia need personal income tax cuts?


That’s after allowing for the revenue forgone by the tax cuts. Without these, and in the absence of any other spending or revenue measures, the surplus would have reached 3.7% of GDP (my calculation, not the PBO’s), largely on the back of the “bracket creep” that would have occurred without some form of personal income tax cuts between now and then.

Even so, there’s an awful lot of bracket creep.

Projected change in average income tax rates by quintile.
Parliamentary Budget Office, 2018-19 Budget: Medium-Term Projections (September 2018), CC BY

The average tax rate across all taxpayers is projected to increase from 22.9% to 25.2% – that is, by 2.3 percentage points. For taxpayers in the second and middle quintiles (the middle fifth and the second-to-bottom fifth) it’s even worse. They will see their average rates rise by more than 4 percentage points. The average tax rate for those in the top and bottom quintiles will climb by less than 1 percentage point.

The PBO’s projections allow for only slight additional relief; small reductions in 2027-28 and 2028-29, worth about 0.4% of GDP, to ensure tax receipts remain within the government’s “cap” of 23.9% of GDP in the final two years of the 10-year projection period.

A helpful backdown on company tax

The PBO’s forecasts don’t allow for the government’s recent decision to abandon
the previously proposed cut in the corporate tax rate for companies with annual turnover exceeding $50 million, which it had been unable to pass through the Senate. That would add the equivalent of almost 0.5 of a percentage point of GDP to the surplus by 2028-29, unless offset by other measures (which it probably will be).




Read more:
The full story on company tax cuts and your hip pocket


By law, the PBO is required to use the same economic assumptions in framing its medium-term projections as those used in the most recent federal budget.

Wishful economic thinking

These requirements mean the projections are conditioned on, among other things, “above-trend economic growth for much of the period” and “a return to close to trend wages growth” by 2021-22.

This week’s national accounts data lend some near-term support to the first of these assumptions, but they (and other data) cast further doubt on the likelihood of wages growth returning to trend in line with the budget assumptions.




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This is what policymakers can and can’t do about low wage growth


The PBO notes that, as a direct result of the government’s personal income tax plan, any weakness in future tax receipts flowing from “weaker economic circumstances” will “flow through directly to the budget bottom line”.

A decade of tight spending

The report highlights the importance of policy decisions in stemming the flow of new spending decisions and tightening eligibility for benefit payments since 2012.

Much of the impact of these will show up more clearly over the next decade. Apart from three areas – the National Disability Insurance Scheme (NDIS), aged care and defence, on which spending is projected to rise by a little over 1 percentage point of GDP over the next decade – other government spending is projected to
fall by around 2 percentage points of GDP between 2017-18 and 2028-29.




Read more:
Government spending explained in 10 charts; from Howard to Turnbull


The PBO notes that “the spending restraint seen over the past few years … may be
increasingly difficult to maintain with an improving budget outlook”.

(Unintentionally) highlighting that risk, the PBO explicitly notes that the proposed further increase in the pension eligibility age to 70 between 2023 and 2035 – which the government abandoned this week – was “projected to have a significant impact on Age Pension spending … over the next decade”.The Conversation

Saul Eslake, Vice-Chancellor’s Fellow, University of Tasmania

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Capping electricity prices: a quick fix with hidden risks


Guy Dundas, Grattan Institute

Governments have got the message: Australians are angry about electricity prices. On Monday, Prime Minister Malcolm Turnbull announced a decisive shift away from reducing emissions to reducing prices.

This move means that both the federal government and the opposition have adopted an Australian Competition and Consumer Commission (ACCC) recommendation to cap electricity prices through a regulated “default offer”, although whether the states and territories will support this approach is unclear.

The good news is that price caps will probably work as advertised. That is, they will reduce prices for a relatively small number of customers who are currently on bad deals.

The bad news is that capping prices could also have unintended consequences.




Read more:
A high price for policy failure: the ten-year story of spiralling electricity bills


Electricity prices have risen much faster than inflation for more than a decade. From around 2005 to 2014 the cost of the electricity network (the “poles and wires”) increased substantially, mainly through over-investment by various state government owners, and highly prescriptive (and expensive) reliability standards.

Since 2016, wholesale electricity prices have increased rapidly as gas prices have risen and as old coal-fired power stations were retired at the end of their life, reducing supply. During the same period governments required prices to rise to pay for renewable energy subsidies, particularly for rooftop solar systems.

Together, these three factors account for about 80% of the increase in household electricity prices over the past decade. Bashing big companies is the flavour of the month, but there was not a lot that energy companies such as AGL, Origin and EnergyAustralia could realistically have done to mitigate any of this.

Change in average residential customer effective prices (c/kWh) from 2007–08 to 2017–18 across the National Electricity Market (prices in real 2016–17 dollars, excluding GST).
ACCC

But several other factors have driven prices still higher, including the substantial profit margins charged by the big energy retailers. This prompted the ACCC’s recommendation of a “default offer”, to ensure that a customer who does not sign up to a market contract pays no more than a regulated price.

Household savings?

Both sides of politics say that this policy will save some households more than A$100 a year. But this is only true of the relatively small number of households who have not signed a contract with a retailer and so are on a “standing offer”.

In Victoria, the state with the most developed retail market, this is only 7% of households. That figure is higher where price controls have been removed more recently (around 19% in Southeast Queensland), but it is declining rapidly (see page 244 here).

So there will be large savings, but only for a small proportion of households. What’s more, the ACCC’s analysis suggests that the measure will not particularly benefit lower-income households, because those on hardship payment programs are less likely to be on a standing offer (see page 245 here). Think beach houses, not working families.

A quick fix

The danger is that politicians may be tempted to use price caps as a quick fix to reduce prices across the board. Given the many factors that have pushed up electricity prices in recent years, this approach is likely to be counterproductive.

It is likely to damage competition and inadvertently benefit the biggest power companies. An aggressively low price cap would make it impossible for many retailers to recover their genuine costs of supplying electricity. Fewer retailers would mean increased market concentration. And because most power companies are both retailers and generators, a small saving for consumers from lower retail margins could be more than offset by price increases resulting from a less competitive wholesale market.

Now is not the time to abandon market-based competition, given the rapid change in Australian and global energy markets. International companies such as Neoen, SIMEC ZEN, Total Eren and BayWa r.e. are investing in renewable generation and battery storage, and increasingly selling power directly to commercial and industrial customers. It is only a matter of time before these players begin to compete in the wider retail market.

What’s more, while product innovation in retailing has been limited to date (indeed, one of the critiques of a competitive electricity retail market is that they are all supplying the same electrons through the same wires), the prospects for future innovation are good. Rooftop solar panels and batteries provide a new way to supply power, and companies can increasingly use data from smart meters to inform and empower consumers.




Read more:
The solar panel and battery revolution: how will your state measure up?


It is understandable that governments want to protect consumers from high electricity prices. A modest price cap through a default offer, implemented cautiously, might be analogous to existing measures under Australian consumer law that limit excessive credit card payment surcharges. But the ACCC does not directly regulate credit card fees, and nor should governments directly regulate electricity prices, the drivers of which are complex and constantly changing. Rather, the focus should be on helping consumers to navigate a competitive electricity market.

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The Conversation

The ACCC’s default offer recommendation is not just about capping prices for a small number of disengaged customers. It is also intended to provide a clear benchmark against which all customers can compare offers and get a fair deal. Both major federal parties have indicated their support for a range of ACCC proposals to help consumers understand electricity prices. The government should implement the full package, with price caps playing a limited role, if any. Price caps are a seductive short-term solution with dangerous longer-term consequences.

Guy Dundas, Energy Fellow, Grattan Institute

This article was originally published on The Conversation. Read the original article.

Senate kills tax cuts for big business as Dutton canvasses for second leadership bid


File 20180822 149475 36pn9.jpg?ixlib=rb 1.1
The Senate defeat ends months of wrangling by Senate leader Mathias Cormann to get the tax measure through.
AAP/Lukas Coch

Michelle Grattan, University of Canberra

The government has finally lost its bid to give big companies tax cuts, after the Senate rejected a desperate compromise that would have excluded the big banks.

With the Liberals in free fall over the leadership crisis and Peter Dutton admitting he is shaping up for another tilt at Malcolm Turnbull, the Senate defeat of the tax cuts, by 36-30, although long expected, was yet another blow to a reeling government.

Earlier Dutton, on 3AW, said of his campaign for the prime ministership: “I’m speaking to colleagues, I’m not going to beat around the bush with that.”

“If I believe that a majority of colleagues support me then I would consider my position”.




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Dutton said he did not think the government should persist with the business tax cuts to the election.

“I would support that money being applied either to households or to a tax cut for small or micro businesses to allow them to grow”.

His stand on the big business tax cuts is part of the highly populist policy pitch he is putting forward, which includes removing the GST from electricity bills and having a royal commission into power companies.

“One of the things that we could do straight away in this next billing cycle is take the GST off electricity bills for families. It would be an automatic reduction of 10% off electricity bills,” he said.

“We could set up a royal commission into the electricity companies and into the fuel companies. I think Australian consumers for way too long have been paying way too much for fuel and for electricity and something just isn’t right with these companies.




Read more:
View from The Hill: Malcolm Turnbull struggling to shore up his border


“Like we’ve done with the banks, I think the royal commission has the ability to get to the bottom of what is fundamentally wrong in the system, and what could help ease some of that pressure on families and potentially small businesses.”

The Senate defeat ends months of wrangling by Senate leader Mathias Cormann to get the tax measure through. Those against, apart from Labor and the Greens, were crossbenchers from One Nation and Centre Alliance, as well as Derryn Hinch and Tim Storer.

The government has already legislated phased-in cuts for companies with turnovers up to $50 million annually. The defeated legislation would have phased down the corporate rate for the big companies from 30% to 25% by 2026-27.

The proposal to exclude the banks was put by the government as a last roll of the dice. The debate was strung out this week as Cormann tried to swing the critical crossbench votes.

Cormann told the Senate the government understood the politics in relation to the banks, but as for other big companies, it was critical for Australia to have a competitive tax rate. Hinch unsuccessfully promoted a proposal to impose a ceiling of $500 million turnover.

During Wednesday morning’s debate, Labor made merry with the Liberal leadership chaos.

Labor frontbencher Doug Cameron said “The question is when is Senator Cormann going to join his great mate, Peter Dutton? When is he going to join him and when is the end of this government going to actually happen? I hear that it’s on again.” On Tuesday, Cormann declared his backing for Malcolm Turnbull.

The Business Council of Australia said: “The Senate’s failure to support a modest company tax cut over the next decade leaves Australia with the third highest company tax rate in the developed world, and at risk of having the highest.

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The Conversation

“It is extraordinary that Senators representing states where business investment is so vital have walked away from this for pure short-term political reasons.”

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Turnbull cremates big business tax cuts after Senate kills them


Michelle Grattan, University of Canberra

The government has dropped its commitment to tax cuts for big businesses, after the legislation was defeated in the Senate on Wednesday.

Malcolm Turnbull said that instead, the government would consider how it could enhance its existing program of tax cuts for small and medium businesses, perhaps bringing forward these, although he gave no detail.

At a joint news conference with Treasurer Scott Morrison and Finance Minister Mathias Cormann, Turnbull announced the much-anticipated abandonment of the corporate tax cuts soon after Peter Dutton, who is spelling out a number of his policy positions, said they should not be taken to the election.

Turnbull said: “we have to recognise in all of this the iron laws of arithmetic.”

The government is also dropping its attempt to scrap the energy supplement for new welfare entrants.

The policy dates from 2016 when it was estimated to save $1.4 billion over five years. The commitment to the repeal was confirmed this year. But the measure can’t be passed through the Senate.

The supplement was originally compensation for the Labor carbon tax. It is worth $14.10 for a couple and $10.60 for a single.

Turnbull said the funding had already been covered in the contingency reserve so there would be no adverse impact on the budget.

On Dutton’s proposal to take the GST off electricity bills, Morrison said this would cost $7.5 billion over four years.

“That would be a Budget blower, an absolute Budget blower”, Morrison said.

Asked about Dutton continuing to pursue his job, Turnbull said: “Well, we had a ballot earlier this week … The iron laws of arithmetic confirmed my leadership of the Liberal party”.

He said he had had discussions with the multiple frontbenchers who had offered to resign after supporting Dutton in Tuesday’s ballot: “Look, what I’m endeavouring to do is to obviously ensure that the party is stable, to maintain the stability of the government of Australia. That’s critically important.

“The cabinet ministers, apart from Peter Dutton, of course, who came to me and told me that they had voted for Mr Dutton in the leadership ballot, have given me unequivocal assurances of continuing loyalty and support.”

When Cormann was asked to rule out shifting support to Dutton, he said he supported Turnbull and “you’re asking me a hypothetical.”
Pressed, he said he would continue to serve Turnbull “loyally into the future.”

If Cormann shifted support, it would bring a quick end to Turnbull’s position.

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On Tuesday Cormann said, “I disagree with my good friend Peter Dutton. I support Prime Minister Turnbull. I’ve supported him loyally since he was elected leader in September 2015 and I will support him loyally as his representative in this chamber until the next election and – subject to the will of the Australian people – hopefully beyond.”

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

View from The Hill: Energy policy and Turnbull’s leadership plunge into debilitating uncertainty


Michelle Grattan, University of Canberra

The most fraught day of his prime ministership has seen the implosion of one of Malcolm Turnbull’s key policy pledges – to deliver certainty on energy policy – that only weeks ago seemed on course.

As Turnbull threw everything at shoring up his leadership, business critics denounced the compromise he unveiled to appease rebellious backbenchers.

His energy policy rework placated some internal dissidents, but the capitulation has left his authority weakened and the issue itself back in confusion. Stakeholders have been left dismayed and bewildered.

After the announcement, the government was insisting the National Energy Guarantee policy was alive, as some of its backbench critics were pronouncing its demise.

Asked “is the National Energy Guarantee dead?” Treasurer Scott Morrison said on Sky, “No, not at all. It remains government policy.” He told the ABC: “The policy remains as we took it to the party room with improvements.”

But Kevin Andrews, one of Tony Abbott’s close allies, told Sky: “The reality is that the NEG, for at least the term of this parliament, is dead in the water. There is more chance of seeing a Tyrannosaurus in the local suburban street than seeing this legislation come into the parliament.”

Turnbull’s energy compromise has two parts.

First, legislation to set the 26% emissions reduction target has been shelved, on the ground that a bunch of Coalition MPs would cross the floor.

Turnbull didn’t dare to risk the hazardous route of negotiating the legislation’s passage with Labor, which might have come to nothing but an embarrassing failure, and anyway would have incited the hardliners in his ranks. And a brief flirtation with implementing the target by regulation was abandoned after that caused its own backbench backlash.

Second, a set of highly interventionist measures will be rolled out for use against recalcitrant power companies, including the possibility of breaking up those which abuse their market power.

The initiatives are based on the recent report from the Australian Competition and Consumer Commission, but even the ACCC didn’t support divestiture.

“Requiring the divestiture of privately owned assets is an extreme measure to take in any market, including the electricity market,” it said.

It is certainly an extraordinary course for a pro-market Liberal prime minister to contemplate.

Notably, the Nationals were happy – they had been pressing for the government to take this route. As former deputy prime minister Barnaby Joyce said with enthusiasm, it means “if you play up, we can break you up”.

So where is the great NEG adventure left?

Battered by political bastardy, with months of good work by Energy Minister Josh Frydenberg trashed. Without a legislated target. With less chance of an agreement with the states, which need to tick off on the mechanism. Throwing up fresh problems for investors and promising a continuation of the political climate wars.

As Innes Willox, chief executive of the Australian Industry Group put it succinctly: “Long-term investment certainty in the energy sector remains further away than ever. Despite the best efforts and goodwill of many, energy policy has again fallen victim to short-term political gamesmanship”.

And where is Turnbull’s leadership left, as backbenchers contemplate whether they would be better off under a Peter Dutton prime ministership?

No one quite knows.

Morrison told the ABC: “I spoke to Peter today in Question Time and he said his position hadn’t changed and he was fully supportive of the Prime Minster and the government’s policies.”

Just think about that. The Treasurer is asking (in question time no less) a senior cabinet colleague about his intentions.

Basically anything could happen, anytime.

On Tuesday morning, as chance has it, there is a separate Liberal party meeting, before the joint Coalition parties meeting. At the very least, it will be an interesting discussion. Whether more occurs, who knows?

On Monday night Dutton, the man on the leadership stair, was reportedly very angry after the Ten Network ran a story raising a question about his eligibility for parliament under section 44’s pecuniary interest provision.

Ten has said the story was not political leak, and the timing coincidental. But Dutton would naturally see it as a strike from the Turnbull camp.

If the next few days go quietly, Turnbull will live now from poll to poll, with enemies circling like crows over a weakened animal.

Those enemies could hardly have anticipated they would be able to do so much damage to him, in just a week, after a Coalition parties meeting that actually strongly endorsed the original NEG policy.

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They’re watching, waiting. If, or when they judge Turnbull is vulnerable – that he has lost his numbers – they are ready to strike. Now or later.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Malcolm Turnbull shelves emissions reduction target as leadership speculation mounts


File 20180820 30593 87nest.jpg?ixlib=rb 1.1
The government has shelved any move to implement the 26% reduction in emissions because it cannot get the numbers to pass legislation in the House of Representatives.
AAP/Mick Tsikas

Michelle Grattan, University of Canberra

Malcolm Turnbull has announced the government will shelve any move to implement the 26% reduction in emissions because it cannot get the numbers to pass legislation in the House of Representatives.

The desperate attempt to quell the rebellion in his ranks comes as Turnbull’s leadership is under mounting pressure, with speculation about a leadership bid sooner or later from Home Affairs Minister Peter Dutton.




Read more:
View from The Hill – It’s time for Turnbull to put his authority on the line


But Turnbull told a news conference that Dutton had been at Monday morning’s leadership meeting and “has given me his absolute support”.

“I enjoy the confidence of cabinet and of my party,” he declared.

In a package of changes to the National Energy Guarantee, Turnbull announced the government would move for extraordinarily strong measures to be available against companies that do not give consumers a fair deal, including ultimate divestment.

The government has retreated from Turnbull’s Friday compromise move of implementing the 26% reduction target by regulation. That idea, aimed at denying critics the opportunity to cross the floor, sparked a fresh backlash from Coalition MPs who thought it would make it easier for a Labor government to increase the target.

“Our policy remains to have the emissions intensity standard in the legislation,” Turnbull said at a news conference.

But “as John Howard said, politics is governed by the iron laws of arithmetic and in a House of Representatives with a one seat majority, even with strong support in the party room, if a small number of people are not prepared to vote with the government on a measure then it won’t get passed. So that’s the reality.”

He said the government would bring the target legislation forward “where and when we believe there would be sufficient support in the House of Representatives and obviously in our party room to progress this component of the scheme”.

Turnbull has been frantically seeking any means to pacify his critics, as Tony Abbott and other hardliners are determined to use the energy issue to try to bring him down.

However, it is unlikely his latest move will satisfy his most trenchant opponents. Critics such as Eric Abetz are broadening their attacks on Turnbull to call for government policy changes in other areas, including immigration.

Turnbull admitted he had not personally spoken to Labor to determine whether it would support the emissions legislation, which would give it the numbers in the House.

The shelving of the emissions legislation could cause the Labor states – yet to sign off on the National Energy Guarantee – to walk away from the broad NEG scheme.

Under the initiatives to try to drive down electricity prices announced by Turnbull, a “default market offer” would be set, from which all discounts would be calculated.

“Consumers will be able easily to compare offers from different companies and recognise when they’re being ripped off or when they’re getting a fair deal,” Turnbull said.

He said the Australian Competition and Consumer Commission estimated that for average customers on an inflated standing offer, the savings on moving to a new default market offer could range between $183 and $416 a year. For the average small to medium business the move could save between $561 and $1457.

Turnbuil said the ACCC would be given new powers to “step in where there has been abuse or misuse of market power.

“In the most egregious cases of abuse, additional powers will be conferred on government to issue directions on operations, functional separation and even, as a last resort, divestiture of parts of the big power companies,” Turnbull said.

At his news conference, where he was flanked by Treasurer Scott Morrison and Energy Minister Josh Frydenberg, Turnbull rejected a reporter’s suggestion that he had just delivered Tony Abbott’s policy. Abbott has wanted the emission target dropped and Australia to walk away from the Paris climate agreement.

“Our energy policy remains the same, but we are not going to present a bill into the House of Representatives until we believe it will be carried,” Turnbull said.

“We obviously need the support of sufficient of our colleagues to get it passed and that means, you know, substantially all of them.”

On Paris, he said: “We are parties to the Paris Agreement and the government has committed to that”.

The president of the Queensland Liberal National Party, Gary Spence, is urging MPs from Queensland – a vital state at the election – to replace Turnbull with Dutton.

Meanwhile, Western Australian Liberal senator Linda Reynolds strongly backed Turnbull, telling Sky she “absolutely” believed he would be prime minister at the election.

Former deputy prime minister Barnaby Joyce welcomed the government’s crackdown on power companies saying it was a good outcome. He was particularly pleased with the divesture power, which meant “if you play up, we can break you up”. Turnbull had shown his “capacity to listen”.

Throwing his weight behind the revised package, Joyce said “it’s a great move today.” Asked on Sky about the leadership, he said “I don’t think changing prime ministers looks good.” He also dismmissed Spence’s call for a move to Dutton saying the parliamentary wing should not be confused with the branch members.

Monday 2:33pm

UPDATE: Nationals enthusiastic about revisions but energy industry is critical

The Nationals have swung in strongly behind the revised package.

Deputy Prime Minister Michael McCormack and his senior ministerial colleagues held a joint news conference to back the enhanced measures to attack high prices.

Nationals who previously had been dissidents, including former prime minister Barnaby Joyce, made separate supportive comments.

The fact the backbench Nationals have been brought back into the tent is important for Turnbull, because it leaves the Liberal hardliners more isolated.

The Nationals are particularly enthusiastic about the commitment to embrace the ACCC recommendation for the government to underwrite investment in projects for new dispatchable power undertaken by new players.

Although the recommendation is technology-neutral, the Nationals see this as a pathway for new coal projects. Nationals deputy leader Bridget McKenzie said: “I’m not afraid to say the C-word: coal, coal, coal is going to be one of the areas we invest in.”

Queensland Nationals backbencher George Christensen, said: “We have a new energy policy thanks to a band of ‘Liberal National rebels’ who stood firm and fought for common sense.”

Christensen said: “What has been announced this morning puts price reductions first and foremost, so pensioners struggling to pay their power bills come before the ‘feel good’ Paris Agreement.”

Another Nationals backbencher, Andrew Gee, welcomed “plans to abandon the National Energy Guarantee”. “It shows that if you stand up and be counted you can actually make a difference, but it’s disappointing that it took this long”.

Opposition leader Bill Shorten labelled Turnbull “truly a white flag prime minister”. “Every day it is a new policy
from the government, a new policy not designed to lower energy prices but just for Mr Turnbull to keep his job from his enemies,”

“Mr Turnbull has demonstrated that he is not the leader this nation needs. Real leadership is about fighting
for the principles you believe in. Real leadership is about not always giving in to your enemies every time they disagree with you,” Shorten said.

Labor states and the ACT were scathing.

Victorian Energy Minister Lily D’Ambrosio said: “I’m not sure Malcolm Turnbull knows what the NEG is anymore – or if it still exists.”

“We’ll carefully consider whatever energy policy emerges out of the infighting going on up in Canberra.”

Queensland premier Annastacia Palaszczuk said “what we are seeing today is energy policy in free fall”.

The ACT minister for Climate Change, Shane Rattenbury said the federal government had now completely capitulated on emissions and climate change, and abandoned the Paris Climate Change commitments.

“The NEG is dead. It was hailed as a policy to address the ‘trilemma’ of prices, reliability and emissions reduction. Instead, Federal energy policy is being determined by the worst, climate change denying elements of the Liberal Party,” Rattenbury said.

The Australian Energy Council’s chief executive, Sarah McNamara, criticised the government’s announcement, saying it “has left the most critical policy, the National Energy Guarantee, in limbo.

“Re-regulation of electricity prices and aggressive market interventions are not the long-term answer to high energy prices,” she said.

“The NEG and policy stability remain the long-term solution to bringing down prices.”

McNamara said that “replacement investment demands bipartisan policy and the lack of it remains the biggest drag on the energy market.”

“This is policy with no consultation,” she said.
“Re-regulation has the very real potential to damage competition and confidence.”

McNamara said increasing the ACCC’s powers to allow divestment of private assets was not supported by the ACCC’s own report.

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The Council represents 21 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets. They collectively generate the overwhelming majority of electricity in Australia.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.